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ONE GIFT, A LIFETIME INVESTMENT


MEET YOUR PERSONAL FINANCIAL GOALS WHILE MAKING A DIFFERENCE FOR KU'S FUTURE.


THURSDAY DECEMBER 2, 2021


SAVVY LIVING




HOW TO MANAGE AN INHERITED IRA FROM A PARENT

What are the rules regarding inherited IRAs? When my mom died this year, I
inherited her traditional IRA and would like to know what I need to do to
execute it properly.

I am very sorry about the loss of your mother. Inheriting a traditional IRA from
a parent has a unique set of rules you need to know which will help you make the
most of the money you inherit and avoid a tax-time surprise. Here are some
basics.




SET UP AN INHERITED ACCOUNT


Many people think they can roll an inherited IRA into their own IRA. But if you
inherit an IRA from a parent, aunt, uncle, sibling or friend you cannot roll the
account into your own IRA or treat the IRA as your own. Instead, you will have
to transfer your portion of the assets into a new IRA set up, formally named as
an inherited IRA. For example, it could be titled [name of deceased owner] for
the benefit of [your name].

If your mom's IRA has multiple beneficiaries, it can be split into separate
accounts for each beneficiary. Splitting an account allows each beneficiary to
treat their own inherited portion as if they were the sole beneficiary.

You can set up an inherited IRA with many bank and brokerage firms. However, the
easiest option may be to open your inherited IRA with the firm that held your
mom's account.




10-YEAR WITHDRAWAL RULE


Due to the SECURE Act, which was signed into law in December 2019, many
non-spouse (but not all) IRA beneficiaries must deplete an inherited IRA within
10 years of the account owner's death. This applies to inherited IRAs if the
owner passed away after Dec. 31, 2019.

There is no limit on when or how often you withdraw money from the account, as
long as the account is empty by the end of the 10 years. This means you can
choose to withdraw all of the money at once, you can leave it sitting there for
a decade and then take it all out, or you can take distributions over time. Be
aware that just as with a non-inherited traditional IRA, each withdrawal will be
counted as income and subject to taxes in the year you make the withdrawal.




EXCEPTIONS TO THE RULE


There are several exceptions to the IRA 10-year rule, including for a surviving
spouse, minor child, disabled or chronically ill beneficiary or a beneficiary
who is no more than 10 years younger than the original IRA owner. These
beneficiaries may have more time to draw down the account and pay the resulting
tax bill.

For example, when you inherit an IRA from a spouse, you can rollover the IRA
balance into your own account and delay distributions until after you turn age
72.

Minor children do not become subject to the 10-year rule until they reach the
"age of majority," which is age 18 in most states. Disabled and chronically ill
beneficiaries, and individuals no more than 10 years younger than the original
account owner have the option to stretch required withdrawals over their
lifetime.




MINIMIZE YOUR TAXES


As tempting as it might be to cash out an inherited IRA in a lump-sum
withdrawal, tread carefully. This option could leave you owing a hefty sum when
it is time to file your taxes. Withdrawals from a traditional IRA are generally
taxable as income, at your income tax rate.

For some people, it can be a smart tax move to gradually draw down the account
over the 10-year period to avoid a large tax bill in a single year and
potentially being bumped into a high tax bracket. If you are approaching
retirement, you may want to wait to start withdrawing from the account until you
are retired and your income drops, potentially putting you into a lower tax
bracket.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today
Show and author of "The Savvy Living" book. Any links in this article are
offered as a service and there is no endorsement of any product. These articles
are offered as a helpful and informative service to our friends and may not
always reflect this organization's official position on some topics. Jim invites
you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK
73070.

Published September 24, 2021




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CONTACT


ANDY MORRISON

Vice President, Gift Planning Phone: (785) 832-7327
Fax: (785) 832-7493
P.O. Box 928
Lawrence, KS 66044-0928
amorrison@kuendowment.org



KRISTIN SHORE

Associate Development Director, Gift Planning Phone: (785) 832-7341
Fax: (785) 832-7493
P.O. Box 928
Lawrence, KS 66044-0928
kshore@kuendowment.org



MALCOLM JACKSON

Associate Development Director, Gift Planning Phone: (785) 832-7383
Fax: (785) 832-7493
P.O. Box 928
Lawrence, KS 66044-0928
mjackson@kuendowment.org


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PRIVACY STATEMENT

This site is informational and educational in nature. It is not offering
professional tax, legal, or accounting advice. For specific advice about the
effect of any planning concept on your tax or financial situation or with your
estate, please consult a qualified professional advisor.

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